Limiting Centre's share might push up state's burden for high-risk crops

The Union Cabinet’s decision on Wednesday to limit the central subsidy under the Pradhan Mantri Fasal Bima Yojana (PMFBY) for premium rates up to 30 per cent in unirrigated areas and 25 per cent in irrigated areas has stirred up a hornets’ nest, with the Opposition Congress alleging it will push up the farmer’s share of premium.

However, official sources clarified that the latest tweaks to PMFBY will not push up farmer’s share in the premium, from the present 2 per cent of sum insured for kharif and 1.5 per cent for rabi. But it could definitely push up the state’s share of subsidy burden in the actuarial PMFBY premium, if it opts to notify high-risk crops under the scheme.

Explaining the format, a senior government official said that the actuarial premium of a crop comes to 40 per cent in an unirrigated area. In this, the farmer’s share is capped at 2 per cent for kharif, while in the current format, the balance 38 per cent subsidy is shared equally between the Centre and states in the ratio of 50:50.

From the upcoming kharif season, while the farmer’s share will remain at 2 per cent, the Centre on its part will bear the subsidy only up to 30 per cent, which means 15 per cent in a 50:50 ratio. The balance, which in this case comes to around 23 per cent, will have to borne by the states concerned, if it wants to implement the scheme.

As a matter of fact, according to some insurance company officials, once PMFBY has been made voluntary for loanee farmers as well, the actuarial premium for several crops in many areas will tend to be on the higher side, which means if states want to participate in the scheme, they will have to fork out more in terms of their share of subsidy.

Presently, the actuarial premium in most crops is around 15-20 per cent, which insurance company officials said will easily go up to 25-30 per cent once a fewer numbers of farmers participate in the scheme.

Under PMFBY, farmers pay 2 per cent of the sum insured as their share of premium for kharif crops, 1.5 per cent for rabi crops, and 5 per cent for horticulture and commercial crops.

If the actuarial premium is lower than this rate, the lower of the two would apply. The difference between the actuarial premium rate and the premium paid by farmers was the subsidy shared equally between the Centre and states.

Criticising the Union Cabinet’s latest tweaks to PMFBY, former finance minister P Chidambaram in a series of tweets said, “Nothing can be more anti-farmer than the central government’s decision to reduce its contribution to the crop insurance scheme. Making crop insurance voluntary for loanee farmers is another retrograde step.”

What is required, he said, is to bring more cropped area under crop insurance, but the new decisions will reduce coverage, putting millions of farmers at risk.

“Another example of the Bharatiya Janata Party’s government’s short-sightedness and misplaced priorities,” the former finance minister tweeted.

The Congress meanwhile, said the Cabinet’s decision to not implement PMFBY in those states which inordinately delay releasing their share of premium subsidy is a classic case of blaming someone else for one’s own misdeeds.  

Congress said that the Narendra Modi government is trying to shut down PMFBY in a surreptitious manner by making it completely unimplementable.

A top central government official clarified that one reason why the Centre has planned to limit its role in high-premium crops is to encourage states to analyse the reasons and undertake efforts to diversify crops.